Barings' combination of quantitative and qualitative analysis and tools provide a comprehensive and rigorous framework for investing in emerging markets local debt. In this Viewpoint, we give readers an inside look into our investment process.
A Look Inside the Barings Emerging Markets Local Debt Investment Process
EM Local Debt: Understanding Returns
The starting point for our investment process is the recognition that EM Local Debt has two unique sources of returns: interest rates and currencies. Philosophically, we are not in the ‘inflation is dead’ camp. Inherent to our approach is the view that each country’s economic cycle determines monetary conditions and interest rate levels for that country and that while economies may have linkages to developed markets or one another, economic cycles are rarely synchronized. Thus we may view a slowing economy—an unattractive prospect to some, perhaps—as presenting a potentially attractive investment opportunity from a rates perspective. For currencies, we view economic competitiveness as the primary determinant of currency positions and returns.
Separating the analysis of interest rates and currencies enables us to broaden the scope of the overall opportunity set, while at the same time enhancing the focus of our research and analysis for each of these two distinct return drivers. We believe that the key differentiators for the Barings Emerging Markets Local Debt strategy are found in the proprietary tools and analysis that we use. Indeed, the foundation of our investment process is built upon highly sophisticated models and is further supported by in-depth economic analysis that helps to guide and determine the strength of conviction in our investment views.